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Full text of "Description of tax bills relating to tax for oil spill liability trust fund (S. 1066) and deduction for oil spill cleanup costs (S. 771) : scheduled for a hearing before the Senate Committee on Finance on June 21, 1989"

DESCRIPTION OF TAX BILLS 

RELATING TO 

TAX FOR OIL SPILL LIABILITY TRUST FUND (S. 1066) AND 
DEDUCTION FOR OIL SPILL CLEANUP COSTS (S. 771) 

Scheduled for a Hearing 

Before the 

SENATE COMMITTEE ON FINANCE 
on June 21, 1989 

Prepared by the Staff 

of the 

JOINT COMMITTEE ON TAXATION 

June 19, 1989 

JCX-24-89 



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INTRODUCTION 



The Senate Committee on Finance has scheduled a public 
hearing on June 21, 1989, on bills relating to (1) the 
petroleum tax for the Oil Spill Liability Trust Fund (S. 
1066, introduced by Senator Chafee); and (2) the 
deductibility of oil spill cleanup costs (S. 771, introduced 
by Senator Reid). 

This document, •'■ prepared by the staff of the Joint 
Committee on Taxation, provides a description of present law 
and of the bills. 



■"■ This document may be cited as follows: Joint Committee on 
Taxation, Description of Tax Bills Relating to Tax for Oil 
Spill Liability Trust Fund (S. 1066) and Deduction for Oil 
Spill Cleanup Costs (S. 771) (JCX-24-89), June 19, 1989. 



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Tax for Oil Spill Liability Trust Fund (S. 1066); 
Deduction for Oil Spill Cleanup Costs (S. 771) 



Present Law 



Oil Spill Liability Trust Fund petroleum tax 

Present law (Code sec. 4611) establishes an excise tax 
of 1.3 cents per barrel on domestic crude oil and imported 
petroleum products (including imported crude oil) for the 
purpose of funding the Oil Spill Liability Trust Fund. 
However, the tax will not be imposed until qualified 
authorizing legislation^ is enacted. Although the tax itself 
was enacted in 1986, qualified authorizing legislation has 
never been enacted. Consequently, this tax has never been 
collected. This tax expires on December 31, 1991. 

The tax on domestic crude oil would be imposed on the 
operator of any United States refinery receiving such crude 
oil, while the tax on imported petroleum products would be 
imposed on the person entering the product into the United 
States for consumption, use, or warehousing. If domestic 
crude oil is used in, or exported from, the United States 
before imposition of the petroleum tax, the tax would be 
imposed on the user or exporter of the oil. The tax base 
would be the same as for the Superfund excise tax on crude 
oil and imported petroleum. 

Trust fund expenditure purposes would include payment of 
removal costs of an oil spill and certain otherwise 
uncompensated claims. In addition, funds would be available 
to carry out specific provisions of other legislation 
relating to oil discharges and pollution. Trust fund amounts 
also would be available to pay all Federal Government 
administrative costs and contributions to the International 
Fund under the Comprehensive Oil Pollution Liability and 
Compensation Act. 

The Oil Spill Liability Trust Fund excise tax is 
scheduled to expire on December 31, 1991. The tax will 
terminate earlier than that date if the Secretary of the 
Treasury estimates that $300 million or more will be credited 
to the Oil Spill Liability Trust Fund before January 1, 1992. 



The Code requires that the authorizing legislation be 
substantially identical to subtitle E of title VI, or 
subtitle D of title VIII, of H.R. 5300 of the 99th Congress 
as passed the House of Representatives. 



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Treatment of costs incurred in connection with the cleanup of 
oil and hazardous substances 

Present law permits taxpayers to deduct the ordinary and 
necessary expenses of carrying on a trade or business. Thus, 
taxpayers who must clean up oil or hazardous substances may 
generally deduct the expenses of the cleanup. Present law 
does not require that the cleanup be done in accordance with 
the requirements of Federal environmental laws for the 
expenses to be deductible. 

Present law does restrict taxpayers' ability to deduct 
certain specific types of payments. These restrictions were 
enacted because the expenditures are considered to violate 
public policy. For example, no deduction is permitted with 
respect to illegal bribes, kickbacks, fines, penalties, or 
treble damage payments under the antitrust laws. Thus, a 
fine or penalty imposed by a governmental unit because of the 
discharge of oil or hazardous substances is not deductible 
under present law. 



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Description of the Bills 

S. 1066 (Senator Chafee) :^ Comprehensive Oil Pollution 
Liability and Compensation Act of 1989 

The bill would establish a domestic liability and 
compensation system for oil pollution from vessels and 
facilities (Title I of the bill). The bill also provides for 
the implementation of certain international conventions 
relating to oil pollution (Title III of the bill). 

Section 207 of the bill contains the tax-related 
provisions. The bill provides that collection of the Oil 
Spill Liability Trust Fund tax would commence with the first 
calendar month beginning more than 30 days after enactment of 
the bill. The bill would also amend the present-law Oil 
Spill Liability Trust Fund tax by extending the expiration 
date of the tax from December 31, 1991, to June 30, 1994. As 
under present law, the tax would terminate earlier than that 
date if the Secretary of the Treasury determines that the 
amount of taxes to be collected would exceed $300 million. 

The bill would modify the limitations on expenditures 
from the Oil Spill Liability Trust Fund to permit the 
President to waive the present-law expenditure limit of $500 
million per incident. The bill also would remove the 
present-law expenditure limit of $250 million on payments for 
natural resource damages. Finally, the bill would provide 
that the Trust Fund may only be used as authorized under the 
bill . 

Effective date . --Imposition of the tax would commence on 
the first day of the first month beginning more than 30 days 
after the date of enactment. 

S. 771 (Senator Reid) : Oilspill Bill 

In general, the bill would deny a deduction for expenses 
incurred by a taxpayer which result from the cleanup of oil 
or hazardous substances discharged by that person. In 
addition to the direct costs of cleanup, non-deductible 
expenses would include legal fees resulting from the 
discharge of oil or a hazardous substance; payments or 
restitution related to discharge of oil or a hazardous 
substance; and any costs required by Federal law or 
regulation . 



This bill was introduced at the request of the 
Administration . 



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The disallowance of these expenses would not apply in 
cases in which either the Administrator of the Environmental 
Protection Agency or the Commandant of the Coast Guard 
(whoever is appropriate) certifies that the taxpayer made a 
good faith effort to comply with applicable Federal laws and 
regulations relating to the clean up of the oil or hazardous 
substances. In addition, the disallowance of these expenses 
would not apply in specified circumstances that are beyond 
the control of the taxpayer. 

The taxpayer would be required to itemize separately the 
cleanup expenses. The Secretary of the Treasury is to 
estimate the revenue gained by the disallowance of the 
expenses. The Secretary is required to transfer from the 
general fund to a separate account an amount equal to this 
revenue gain. These amounts may be expended only in 
relationship to the cleanup of oil or hazardous substances. 

The bill would require the Secretary to submit to the 
House Committee on Ways and Means and to the Senate Committee 
on Finance an estimate of the loss in revenues to the Federal 
Treasury which occurred between January 1, 1970 and December 
31, 1988 by reason of permitting cleanup costs to be deducted 
from gross income. This report would be required to be 
furnished not later than six months after the date of 
enactment. After submitting this report, the Secretary would 
be required to submit an annual report detailing the amount 
accruing to the Treasury as a result of the bill and the 
amount expended for environmental cleanup. 

Effective date . — The bill would be effective for all 
discharges occurring after March 23, 1989, in taxable years 
ending after that date.